What Is The Third
Estate?
Everything
What Has It Been Until Now In The Political Order?
Nothing
What Does It Want To Be?
Something

The Evils of Corporatism

Saturday, November 20, 2004

I hesitate to label the ideology of pro-business conservatives as "corporatism," since that word is used in comparative political science circles to describe a European policy structure. I have struggled to come up with a better word (except maybe "fascist"), but for the moment it is the best I can come up with. If you have a better idea, let me know.

Having said that, corporatism in the American sense will be defined as the use of government power on behalf of the managerial/capital-owning elite (wow that sounds really Marxist). The basic argument of corporatists is that economic growth is most effectively generated by placing control of the nation's economy into the hands of the most productive (and wealthiest) citizens. At worst, corporatists want government to leave business alone to work its magic. At best, it would like positive help in the form of subsidies, protection, favorable regulations, etc.

Corporatism is sharply distinguished from its current political ally, libertarianism. Libertarians believe that business should be left alone because they are a protected form of property. Corporatists are happy to use this justification, but it is not central to their case. Corporatists would be quite happy if, rather than leaving them alone, government would act on behalf of business. Libertarians would see this as corporate welfare, no more legitimate than handouts to poor people. Since the New Deal, libertarians and corporatists have made an uneasy alliance because the state appeared more likely to use its powers to regulate business. Nineteenth century corporatists used government to their advantage, and so in that era were the champions of strong government.

The real thrust of corporatism's argument in on prudential rather than moral grounds. They are not saying so much that the elite have a right to the fruits of the labor because they deserve it. Instead, they claim that the principles of economics suggest that the elite are the most likely to invest and spend money wisely, and to do so in a way that will ultimately benefit the entire society.

Now I am going to say something quite heretical for a liberal. For most of American history, the corporatists were right. Industrial development in the U.S. required that the scarce capital resource be placed in the hands of the industrial/merchant class. Regulations needed to be designed to foster economic development, and the government needed to protect nascent industries from foreign competition. Is this mercantilism? Absolutely. Is mercantilism always a bad thing? Not if you are trying to develop an agrarian economy. This is why Hamilton, Clay, Blaine and the other conservatives of the 19th century were right in their economic policies, and the Jeffersonian and Jacksonian free trade policies were wrong. Trickle down really did work. The result was U.S. economic hegemony by the twentieth century.

The irony is that by this time the old Hamiltonian logic no longer held. U.S. corporations weren't infants any more- they were full grown adults. But they still wanted to be catered to like they were kids. The image of the 30 year old still living with his parents leaps immediately to mind. American business rapidly consolidated into monopolistic trusts that ruthlessly exploited their market position to the disadvantage of their smaller competitors, the consumers, and labor. The child had grown into a healthy, well-adjusted criminal.

The reaction set in on the left, of course, in the form of Progessivism, Populism, the Labor Union movement, etc. The New Deal set in concrete the liberal ideology that unchecked business power was a danger to the United States, and it was right to do so. Trickle down had become trickle on, and a massive government intervention to regulate and control corporate America became necessary. The critique against pro-business policies is essentially now what it has always been: left to themselves, business will hog all the benefits of society and screw everyone else in the process. The only way to make them behave is to discipline them.

The conservative pro-business policies of the last generation have borne predictable fruit. De-regulation and tax cuts have led to the smashing of labor unions, environmental deterioration, lower wages & benefits, and government corruption. Where are the great economic rewards promised by the unleashing of the upper class? The 1980's revival of pro-business ideology (straight from the 1920's) claimed that high marginal tax rates and regulation were stifling growth. Leaving the supply-side nonsense aside, more respectable conservatives employed the venerable Hamiltonian argument that money should go to the top because in the long term everyone will benefit from their investments. What we saw instead was non-productive paper shuffling (the merger frenzy) and conspicuous consumption. Meanwhile the middle class stagnated and the lower class fell further behind.

Globalization has kicked the last leg from beneath the corporatist chair. Nowadays the elite resides in an isolated bubble. It is cosmopolitan and has no particular national loyalties. Tax cuts and favorable treatment to a U.S. company or to wealthy investors is likely to be used to generate growth not in America but in some other country. And shifting economic power upward doesn't make much sense from a consumption perspective either. The beneficiaries may be buying foreign rather than domestic products, and the their lower marginal propensity to consume gives you less bang for the economic buck.

The fate of those at the top of the economic ladder, of the business/investment elite, is no longer tied to the destiny of those in the middle and at the bottom. Once a prosperous elite required a prosperous America, and their works benefitted all of us. Now they can do fine even if America does poorly.